What to watch on Jobs Day: Can wage growth normalize without a substantial rise in unemployment?

On Friday, the Bureau of Labor Statistics (BLS) will release its monthly labor market report. In addition to employment growth at the top of the wage bill and changes in the composition of the labor force, the growth rate of nominal wages is probably the most anticipated indicator.

Even with the recent decline in gross domestic product (GDP), the labor market is expanding at a steady pace, and wage growth continues to lag behind inflation. Despite this, many are still concerned that abnormally high nominal wage growth (compared to the pre-pandemic period) will prevent inflation from returning to more normal levels in the coming year. In this pre-job day post, we’ll take a closer look at wage growth using a few different metrics to assess how much we should worry about wage growth not normalizing in the coming year without aggressive policy measures that cause collateral damage (e.g. , higher unemployment). in the job market. We found that most of these indicators show a slowdown in wage growth in the most recent quarters.

AT Figure A, we report quarterly changes in wages (annualized) using five metrics: average hourly earnings for all workers from Current Employment Statistics (CES); average hourly earnings of production and non-management employees of the CEC; private wages from the Employment Cost Index (ECI); private wages and salaries, excluding incentive payments, from ECI; and private wages and salaries from the national income and product accounts, divided by the measure of the total hours we build. We’re averaging quarterly CES figures, which are typically reported monthly. The data note at the end of this post has more details on these series.

All series except ECI show clear spikes in wage growth in 2020. This is the result of the well-known “composition effect” caused by job loss, which has been highly skewed towards lower-wage workers. The ECI series is a “fixed weight” series that is not affected by composition changes. In recent quarters, the effect of structural changes in raising and then slowing down wage growth seems to be far behind. More importantly, four out of five rows show wage growth, which not only hasn’t changed, but has slowed down of late, even though the unemployment rate remains quite low. This is obviously not conclusive evidence that wage growth is fully normalizing to pre-pandemic trends, but the slowdown is encouraging, even though non-wage price factors keep inflation very high and unemployment remains. very low.

Quarterly wage growth shows no signs of picking up in the first half of 2022.: Annualized Quarterly Wage Changes, Alternative Metrics, 2018-2022

quarterly changes AHE, completely private AHE, prod/not great ECI (Private Salary) ECI (private, excluding incentive payments) NIPA Wages and salaries/total hours worked in the private sector
2018Q2 2.8% 2.8% 2.8% 2.8% 1.8%
2018Q3 3.7% 3.3% 3.7% 2.7% 4.7%
2018Q4 3.6% 3.9% 2.7% 2.1% 1.3%
2019Q1 3.7% 4.0% 2.7% 3.6% 9.6%
2019Q2 2.3% 2.9% 3.0% 3.3% 2.1%
2019Q3 3.6% 3.9% 3.6% 2.7% -0.2%
2019Q4 3.1% 3.2% 2.6% 2.3% 5.3%
2020Q1 4.0% 4.2% 4.1% 4.4% 5.9%
2020Q2 16.3% 16.2% 1.4% 1.4% 24.8%
2020Q3 -3.0% -3.1% 2.3% 2.6% -3.8%
2020Q4 3.2% 3.4% 3.4% 2.6% 10.6%
2021Q1 4.2% 4.6% 4.8% 4.3% 0.0%
2021Q2 4.7% 6.4% 3.6% 3.9% 9.0%
2021Q3 5.7% 7.2% 6.5% 5.0% 8.2%
2021Q4 6.1% 7.3% 4.7% 5.3% 10.0%
2022Q1 5.2% 6.0% 5.2% 6.6% 7.7%
2022Q2 4.3% 5.4% 6.5% 5.4% 5.9%
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The data below can be saved or copied directly to Excel.